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Hospitals brace for end of individual mandate, tax exempt borrowing, in Senate tax bill

Non-profit health systems will be paying more to borrow money, expert says.

Susan Morse, Senior Editor

Senate Republicans were poised to pass a tax bill Friday night by the 51-vote majority needed for passage.

Six Republican senators whose votes had been in doubt said Friday they would back the bill, according to Reuters. This included Senators Susan Collins, Steve Daines, Ron Johnson, Jeff Flake, James Lankford and Jerry Moran. 

Collins of Maine, a moderate who has voted against GOP plans to repeal the Affordable Care Act, indicated by tweet that she would be voting for the bill.

She tweeted that she had received assurances that no reduction in Medicare would be triggered by the tax bill. Amendments she put forward, such as reducing the threshold for medical expenses to be deducted, have been included in the legislation, she said.

Collins had said she was concerned the legislation would trigger a 4 percent, estimated $25 billion reduction in Medicare, according to estimates from the Congressional Budget Office. This would be the result of Pay-As-You-Go Act in the bill.

After Senate Majority Leader Mitch McConnell assured Collins by letter that this would not happen because Congress has the ability to waive the requirement, Collins tweeted that "As revised, this bill will provide much-needed tax relief and simplification for lower- and middle-income families, while spurring the creation of good jobs and greater economic growth."

If passed, the Senate tax must be reconciled with that of a House bill.

Both do away with the individual mandate to get coverage.

Healthcare law specialist Lyndean Lenhoff Brick, founder, president and CEO of The Advis Group, said the tax reform bill is essentially a back door repeal of the individual mandate of the ACA, she said.

"If people aren't required to buy insurance they won't buy insurance," Brick said. "Less people with insurance, means more self-pay and more charity care, and more pressure on hospitals."

[Also: Provider, insurer groups fight to keep individual mandate repeal out of tax reform]

Henry Grady, healthcare industry specialist in the Commercial and Business Banking Division of SunTrust Bank, said from what he has seen at the bank, health systems are most concerned with the bill's provision to end tax-exempt status on borrowing.

As a result, there's been a run at the bank on getting loans before year's end to take advantage of lower rates.

"It's been crazy, we've been very busy for two three months," Grady said.

The bill also ends eliminates a tax exemption when organizations extend their loans.

Currently, large, not-for-profit hospitals and health systems have been able to borrow money at a lower rate.

Should the tax reform pass with the provision, hospitals borrowing money to buy new equipment or for capital projects would have to pay a higher interest rate.

[Also: CBO: Repeal of individual mandate would increase premiums, markets would remain stable]

"For last 10 years we've been in a cycle of low interest rates," Grady said. "The good news is taxable rates are not that much higher than that for tax exempt. They'll have to pay 10 or 20 basis points more."

Uncertainty about what will actually pass has some health systems waiting out the process, Grady said. But there are provisions in both the House and the Senate bill that would eliminate tax exempt borrowing.

The bank has been working to extend the terms on current loans so borrowers can keep their tax-exempt status longer.

Grady admitted he wasn't sure this strategy will be effective because the bill is still being finalized as the House and Senate versions are being reconciled.

What is high on the probability list is that there will be a tax bill, he said.

The tax bill presents enormous pressure on already thin hospital margins, Brick said.

Because of this, providers must become even more efficient.

The surgery schedule must be full and documentation must be pristine to ensure reimbursement

Health systems must be ready to diversify their lines of business to such operations as institutional catering services, she said.

Twitter: @SusanJMorse

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